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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Loan to cost (LTC)

What is loan to cost on a development loan?

ONE OF 80 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Loan to cost is the development lender's advance measured against the total cost of the project — land, construction, professional fees, financing costs and contingency — rather than against the finished value. It is a core test on a development loan because it fixes how much of the project's cost the developer's own equity carries, and that equity goes in before the bank's money does. The desk reads it beside presales and the cost contingency: a comfortable loan to cost with weak presales is still a loan repaid only if the completed stock sells.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Not the same as loan to value: value is what the finished project is expected to be worth, cost is what it takes to build, and a lender who confuses them is lending against a valuer's opinion instead of a budget.

// WORKED IN

// NEXT TO IT

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